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Fitch upgrades Egypt to B+, citing budgeting, economic progress

Fitch Ratings on March 21 upgraded Egypt's long-term foreign currency issuer default rating to B+ from B, with a stable outlook, citing progress in the country's economic and fiscal situations.

The agency said programs under the International Monetary Fund's extended fund facility arrangement are likely to continue to generate better economic outcomes beyond the agreement. The three-year agreement will end later in 2019.

In Fitch's assessment, Egypt's ratio of general government debt to GDP is declining because of structural improvements to the budget and as the government logs surpluses.

Budget sector deficit is projected to fall to about 8.6% of GDP in the fiscal year ending June 2019, with a primary surplus of 1.6% of GDP. Egypt's proposed budget for fiscal 2020 targets a primary surplus of 2% of GDP and a budget deficit of 7.3% of GDP.

"The consolidation will mostly come from lower interest payments because of the disinflation trend, lower interest rates and lower debt as well as another round of subsidy reforms, including the introduction of an automatic fuel tariff adjustment mechanism," Fitch said.

Fitch estimated that real GDP growth will "remain robust" at 5.5% in fiscal 2019 and 2020 but cautioned that risks are "tilted slightly to the downside."

Fitch could upgrade Egypt's ratings if it sees significant structural improvements and sustained progress in fiscal consolidation. It could, however, consider a downgrade if factors such as social unrest weigh on recent structural changes, international reserves come under renewed downward pressure or the Egyptian government fails to cut the fiscal deficit on a sustained basis.